Following
many requests by ELID for a clarification of how the MPR related to other
reviews and compensation schemes and of MPR progress generally I was
invited, as Chairman of ELID, to attend a presentation by the MPR Team.
The following notes cover the main points of the discussion. The Team was
most helpful in clarifying what was going on although good news was at a
premium!

Purpose
was for the Team to explain how far the MPR had got, criteria for
entitlement for compensation and how MPR related to other compensation
issues, notably the latest s425 draft proposal announced at the end of
September.

The
MPR had its origin in a PIA inspection visit in 1998 when queries were
raised by this regulator about whether the documentation and vetting
of clients was adequate to cover the special risks of MPs. EL was not
the only Provider affected but it did dominate the income drawdown
sector. It is not clear whether the PIA query was reported in Annual
Reports or Regulatory Returns for 1998/2000 but the 2001 Annual Report
refers to aprovision to
cover MPR compensationwhich
relates to some 22,000 MP policies sold into both WP Fund and Unitised
Fund since 1996. It is assumed that the bulk of MPs relate to the WPF
although EL could not offer a breakdown. The mid October 2002 mailshot
is the latest ‘happening’ on the MPR. The FSA determined the
contents of the questionnaire that many policyholders and ex
policyholders have received over recent weeks. This might explain why
many recipients have queried the relevance of the questions to the
problems of MP policyholders.

It
was confirmed that the MPR is an entirely separate issue from the
latest s425 Draft Proposal announced at the end of September and
arising out of the B&WD review which was also overseen by FSA.

The
MPR became sidelined during the debate on Compromise Proposals at the
end of last year resulting in very limited action other than pilot
studies during which several hundred cases have been identified as not
qualifying. Staff are now being trained to deal with individual cases
but athough EL was not able to offer a precise programme my assumption
from the discussion is that cases might be determined from mid 2003 to
completion at the end of 2004. When the MPR first came to light in
early 2001 we were told that EL expected only a small number of MP
policies would be found to have been missold. It appears from
information given however that it will be necessary to review all
cases.

Most
important, EL stated that methodology for determining compensation has
also not yet been worked out and agreed with FSA and that it could not
give a date when that would be done. EL agreed that in some cases
recission may be an appropriate remedy in MPR cases in contrast to the
Opinion attached to the B&WD Report dealing with nonGAR
compensation. The Team emphasised the intention by the FSA and EL to
adequately compensate qualifying cases under the MPR.

EL
confirmed that complaints made to the Ombudsman (FOS) relating to
issues covered in the MPR have been ‘parked’ by FOS until
determined under the MPR procedures. It is not clear how FOS is
dealing with multi headed complaints that might cover suitability (MPR),
non declaration of GAR liabilities (B&WD/s425), and breach of
contract but these issues will be followed up with FOS. It is assumed
that the nonGAR misrepresentation complaints are also being
‘parked’ but FOS have not yet responded to our request for a clear
statement as to whether its determination of complaints is being
pre-empted by the FSA and EL. The result of this action could have the
effect of limiting claims and already appears to many to have delayed
matters.

Principal
criteria for qualifying for compensation under MPR is whether a MP was
‘suitable’ for the investor’s personal circumstances having
regard to the customer’s knowledge of the product, whether the level
of investment risk was properly explained by the Provider, the
customer’s attitude to risk and that information provided to the
customer was fair and not misleading. EL did not agree with my
contention that non declaration of the GAR liabilities meant that all
MP policyholders qualified on all counts.

If
a MP policyholder is deemed by EL not to qualify under the MPR, he can
ask EL to reconsider the matter and if EL repeats its rejection the
complainant can then go to FOS. Clearly this could take the process
into 2005 for the slowest cases.

In
summary, the MPR and latest s425 Proposal (covering compensation for
non GARs who left before the Compromise Proposal deadline) are
separate issues. Therefore policyholders who stayed with EL post
Compromise may still qualify under the MPR.Ex policyholders may qualify under the MPR and the latest s425
for misrepresentation as set out in B&WD. Rectification cases may
also qualify under the MPR in some circumstances.

Good
news: potential multiple claims for compensation. Bad news: whole
business potentially mired in administration delays, to-ing and fro-ing
between EL and FSA and the staff are still being trained.

I
asked about progress on Rectification and it was claimed that some
settlements had been made, although not many.They had nothing to add to the note sent recently to
rectification candidates saying that they hoped to have sent out all
Rectification offers by mid 2003.

Conclusions:a clear statement is required from FOS/FSA as to how FOS is
dealing with complaints, the need to press for an acceleration on all
fronts as deadlines have continually slipped.

The
cost of dealing with regulation compliance and reviews such as the MPR
presumably falls on the fund and this must be very significant given
what was learnt at the meeting.

Geoffrey
Glover

Chairman,
ELID

Note:
Members of ELID include continuing and ex Managed Pension policyholders.
ELID allows individual members to compare notes on progress made or
otherwise on the various issues affecting this policyholder class. ELID is
part of E7. Membership enquiries to gjg@onetel.net.uk